by Sam Fowles
Last week TransCanada, the company behind the Keystone XL pipeline, filed notice that it intends to sue the USA, demanding $15bn in compensation for President Obama’s decision not to grant a permit for the pipeline. But this is not just a piece of trade litigation on the other side of the Atlantic, the Keystone arbitration should serve as an indication of what we can expect if the Transatlantic Trade and Investment Partnership is passed un-reformed.
1. This is not just about protection for western investors in developing states
The Department for Business Innovation and Skills (BIS) tends to dismiss concerns about the treaty with the, somewhat airy, assertion that, despite being signed up to 93 similar treaties, the UK has never been successfully sued. Yet the more you increase your exposure, the more likely you are to get sued. When combined with the Comprehensive Economic and Trade Agreement (CETA – the equivalent deal between the EU and Canada) and the Trans-Pacific Partnership (TPP – the equivalent between the USA and pacific-rim states), TTIP will increase the coverage of trade with Investor State Dispute Settlement (ISDS) by over 300%. While most of the UK’s existing treaties are with states which provide little investment into the UK (thus minimal risk of action), TTIP will extend the same right to the top provider of investment into the UK.
Like the UK, the US has never lost a case in ISDS but the Keystone arbitration looks likely to end that streak. The North American Free Trade Agreement (NAFTA – the treaty on which TransCanada are basing their suit) prohibits discriminatory or arbitrary treatment of investors. TransCanada’s notice of action asserts that the Obama Administration rejected the Keystone permit despite awarding permits for almost exactly identical projects, that it ignored its own environmental impact reports and that Administration officials appear to have openly admitted that the decision was made for political rather than environmental reasons. If TransCanada’s lawyers can prove the truth of any of these assertions, the Administration will struggle to defend the suit.
2. TTIP isn’t just about nationalisation
When challenged in the EU Select Committee by Geraint Davies, Lord Maude claimed that investment protection provisions in TTIP would only apply to nationalisation without compensation. The Keystone arbitration shows his understanding is outdated. TransCanada claim that, in denying them permission to build the pipeline, the Obama Administration has deprived them of profits they may have made in the future. This isn’t an absurd claim in the context of ISDS. When a similar claim was made in Ethyl v Canada, the company won.
TransCanada also claim that the Administration owes them compensation for the money they had already invested in building the pipeline. But TransCanada knew that the project may not get approved yet they began building anyway in order to give themselves the best chance of a favourable result. Obviously their gamble didn’t pay off and they made a significant loss. A loss they now want the US taxpayer to cover. This means that investment protection isn’t just about unreasonable confiscation of property. It means that, if an investor gambles on a particular decision by a government, the taxpayer, not the investor will be liable for the losses. Transferring risk from investor to taxpayer is hardly likely to encourage prudent investing.
3. “National treatment” doesn’t mean national treatment
Another of the obligations that TTIP will place on governments is known as “national treatment”. This seems to mean that the government must extend to foreign investors the same courtesies that it would extend to domestic investors. But, although TransCanada allege that the Obama Administration discriminated against them, they claim that this discrimination was not on the grounds of their nationality but because the Keystone XL pipeline was politically unpopular. Yet they still have a case. In Feldman v Mexico the tribunal decided “national treatment” prevents any form of discrimination, even if it wasn’t based on nationality.
4. We need to have a serious conversation about priorities
The debate about TTIP has become almost entirely polarised, with many opponents refusing to see value in any aspect and many supporters dismissing all criticism as “communism” (yes, this was an actual argument used in a House of Commons debate in the 21st Century). The danger is that we fail to talk about the underlying issues. Respect for the Rule of Law suggests that governments should not make arbitrary decisions or decisions based purely on political calculations. Yet surely “purely political considerations” is exactly the basis on which governments should make decisions. TransCanada claim the Obama Administration rejected Keystone XL because pressure groups made it an election issue. In essence their argument is that ordinary people banded together, campaigned together and successfully convinced their government to change its mind. Whether or not this is a “correct” decision, it’s also democracy at work.
Sometimes it’s necessary to overrule the will of the majority to ensure democracy in the long term. Rights like Freedom of Expression prevent the majority from silencing the minority in the belief that the latter still deserve to make their case. Yet at other times immutable laws can serve to undermine democracy. TransCanada had the same chance to campaign for the Keystone XL pipeline as its opponents had to campaign against it. Having lost that argument, they can now fall back on legal rights reserved only for them. Democracy would be seriously undermined if we started to accept laws that prevent the rich from losing arguments.